Medical devices major St. Jude Medical (STJ) posted better-than-expected fourth quarter fiscal 2010 results in a still challenging operating backdrop with adjusted earnings of 75 cents beating the Zacks Consensus Estimates by a penny while exceeding the year-ago earnings of 64 cents.

Fourth Quarter Revisited

Profit for the quarter climbed 8.9% year over year on the back of revenue growth across the board. Revenues leaped 12% to $1,350 million, beating the Zacks Consensus Estimates of $1,323 million. AGA Medical, which St. Jude acquired in November 2010, contributed $25 million to the top line.

Sales were buoyed by continued strong momentum at the company's implantable cardioverter defibrillator (“ICD”) business with revenues surging 16% to $458 million. However, strong ICD sales were partly masked by a still soft pacemaker business.

St. Jude's Atrial Fibrillation and Neuromodulation franchises posted double-digit growth in the quarter. Cardiovascular revenues, including AGA Medical's contributions, surged 20% to $287 million.

We have discussed the quarterly results at length here: St. Jude Beats on All Fronts

Agreement – Estimate Revisions

Magnitude – Consensus Estimate Trend

Given the relative lack of significant movements in either direction, the magnitude of revisions for both first quarter and fiscal 2011 has remained static over the last week. The current Zacks Consensus Estimate for 2011 is $3.28, representing an estimated 9.03% year over year growth.   

St. Jude in “Neutral” Zone

We remain intrigued by St. Jude's ability to deliver consistent revenue and earnings growth. Moving forward, revenue growth should be fueled by numerous product introductions and technological advancements.  A number of growth initiatives should boost the top line in fiscal 2011. 

St. Jude is well positioned to savor incremental opportunities in CRM (especially ICDs) on the back of a strong product pipeline. Launch of several products (including the quadripolar CRT systems) in the U.S. and Europe should boost the company's CRM market share in 2011. St. Jude's Fortify and Unify lines of ICDs are already gaining notable traction.

The company currently holds a 25% share in the global ICD market and is poised to expand its position through increased penetration with these new devices. Its strategic investment in cardiac devices maker CardioMEMS represents another significant opportunity to boost its technologies focused on improving heart-failure management.

Neuromodulation represents another promising prospect for St. Jude. Revenues from this business are growing at a double-digit rate, benefiting from new spinal cord and Parkinson's disease devices as well as sustained adoption of the Eon Mini implantable neurostimulator.

Moving forward, growth in Neuromodulation will be fostered by the adoption of the company's deep brain stimulation (“DBS”) systems in Europe and sustained uptake of the Eon Mini system. St. Jude expects to receive the European approval for the DBS system in the migraine indication in 2011, representing another promising prospect.

This is based on the prevailing macroeconomic factors, pricing headwind, austerity measures and the impact of health care reform. All these factors are expected to continue to weigh on the CRM market through 2011. As such, a soft CRM market may prove to be challenging for St. Jude in the upcoming quarters.

While we are encouraged by St. Jude's solid fundamentals, strong product mix, healthy growth trajectory and operating leverage, we remain wary about competition-driven pricing pressure and the dilutive impact of acquisitions and any unfavorable currency exchange fluctuations on the bottom line. This is reflected in our Neutral recommendation for the stock, backed by a Zacks #3 Rank (Hold).

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